Talyst Acute Care Blog

Drug Pricing and the Impact on Hospital Pharmacy

There was great public outrage in August when Mylan Pharmaceuticals increased the price of the EpiPen – a life saving drug and delivery system for many Americans who suffer from life threatening allergies. However, a recent study shows the impact that rising drug prices have hit hospitals even harder than consumers:

“The high drug prices paid by hospitals has gotten little public attention this year, even as advocates and media organizations have sounded the drum on a number of retail medications that have seen dramatic price increases, including cancer drugs, EpiPens and Turning Pharmaceutical’s Daraprim. The study shows that growth in inpatient drug spending per admission grew by nearly 12 percentage points more than retail prescription spending in 2014 and 4 percentage points more in 2015.”

As I visit with customers, this is a top of mind issue for not only Pharmacy executives but also for health systems. An article in Modern Healthcare which references the study states: “Annual inpatient drug spending was up an average of 23.4% between 2013 and 2015, and 38.7% on a per admission basis, according to the study. Payer reimbursement can’t keep up and nearly all hospitals surveyed said it affected their ability to manage overall healthcare costs.”

As hospitals move into a capitated or shared savings model to help reduce overall healthcare costs, it is imperative that Pharmacists be able to understand drug pricing and defend those prices to payers. Unfortunately, good data on drug prices isn’t always available or predictable and a large price change is only evident when a hospital replenishes their drug inventory. However, many payers are reimbursing hospitals for drugs not on their actual acquisition costs but on out-dated pricing information. The study explains:

“Data show that growth in inpatient drug spending has far outpaced payer reimbursement, and the pharmaceutical inflation rate. The researchers argue that Medicare’s reimbursement rates – which are used by some commercial payers — can’t keep up with price increases. The pharmaceuticals index used by the CMS is updated every five to seven years for existing drugs, which means it doesn’t necessarily capture sudden price increases that have come each year for some drugs.”

A recent KLAS report recognized Talyst for our work in the area of minimizing medication spend by enabling supply chain best practices for drug purchasing, inventory management, and multi-hospital distribution. However, even the most advanced systems and processes can’t address this issue alone:

“Scott Knoer, chief pharmacy officer at the Cleveland Clinic, and David Vandewater, president and CEO of Nashville-based Ardent Health Services, told reporters that they’ve seen drug prices increase by hundreds of percentage points without clear justification. They pointed to a number of high-volume drugs, including Neostigmine, a drug used to reverse the effects of anesthesia, the price of which increased 421% between 2014 and 2015, and Isoproterenol, which saw an increase of 189% from 2013 to 2014, and 101% the next year. Though they pointed out that supply chain best practices like bulk purchasing of drugs across as system can help, they noted many of the highest-priced drugs have no competition, and therefore providers are stuck with a very high price for essential drugs.”

You might think that this problem is only a few “blockbuster” drugs or a few bad actor pharmaceutical company owners but the problem seems to be widespread: “.. extreme price hikes were observed in both high-volume drugs used frequently in hospitals as well as low-volume drugs, both generic and brand-name. Most of the drugs reviewed … were non-innovator drugs, which means they lack any patent protection against competition. Yet, about half had no generic competition.”

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